Weekly Commodities Update Weekly Commodities Update Weekly Commodities Update

Market Insights Today: Bank of Canada’s dovish hike; Step up in share buybacks – 26 January 2023

Equities 5 minutes to read
APAC Research

Summary:  Risk sentiment was boosted in the US afternoon session after Bank of Canada’s pause signal sparked hopes of the Fed taking a similar turn next week. This saw dollar dipping and Gold surging to fresh cycle highs. Earnings results continue to be mixed with cost cutting efforts in the limelight, but some optimism came from buyback announcements from companies like Chevron and Blackrock. Meanwhile, Tesla beat on the EPS but missed on margin and free cash flow. HK stocks return today after Lunar New Year holiday while China markets are still closed.

What’s happening in markets?

Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) pared early losses to finish little changed

On the back of the weakness in the outlook, especially a 7%-8% sequential decline in its Azure cloud computing in the current quarter, from Microsoft (MSFT:xnas), at one point in the New York morning Nasdaq 100 fell as much as 2.5% and S&P 500 slide nearly 1.7%. Stocks then spent the rest of the day climbing to recover from the morning losses. Nasdaq 100 finished the Wednesday session down only 0.3% and S&P 500 nearly unchanged. Microsoft pared early loss to close 0.6% lower. AT&T (T:xnys) jumped 6.6% on solid wireless subscription growth. Boeing (BA:xnys) plunged as much as 4.2%, following reporting a Q4 loss due to margin weakness, but pared all the loss and more, closing 0.3% higher. After the close, Tesla (TSLA:xnas) reported EPS of USD1.19, beating expectations slightly but EBITDA margin of 22.2% missing expectations. The EV giant expects to deliver about 1.8 million vehicles in 2023, in line with expectations. Tesla shares surged over 5% in extended hour trading.

US Treasuries (TLT:Xmas, IEF:xnas, SHY:xnas) richer by 1-3bps on lower UK & European yields

Treasuries got a bid across the pond from stronger U.K. gilts and European government bonds which were helped by safe-haven buying on concerns of a potential escalation of the war in Ukraine as Germany and the U.S. are supplying tanks to Ukraine. Traders also took note of the Bank of Canada’s indication of a plan to pause rate hikes to assess the impact on the economy after raising its policy rate by 25bps to 4.5% on Wednesday. The 5-year auction went well with strong demand. Treasury yields fell 1 to 3 bps across the curve, with the 2-year finishing the session at 4.13% and the 10-year at 3.44%

Hong Kong’s stock market back from the Lunar New Year holiday; Shanghai and Shenzhen closed

Hong Kong’s stock market is resuming trading today after a 3-day long Lunar New Year Holiday while the mainland bourses remain closed for the holiday. During the first four days of the Lunar New Year holiday from Saturday to Tuesday, China’s passenger trips by road, rail, air, and water waterways reached nearly 96 million in China, about 29% higher from the same period last year. Chinese ADRs were in general firmer from their pre-holdiday closes in Hong Kong, with Alibaba (BABA:xnys; 09988:xhkg) up 1.2%, Tencent (TCEHY:xnas; 00700:xhkg) up 2.1%). JD.COM (JD:xnas; 09618:xhkg) up 0.6%, Li Auto (LI:xnas; 02015:xhkg) +6.5%, and NIO (NIO:xnys; 09866:xhkg) +7.1%.

FX: Dollar downturn resumes amid expectations of a dovish Fed

While a downshift in the Fed rate hike trajectory has been broadly signalled by the members of the board before the quiet period kicked off, the Bank of Canada’s pause signal has left the markets hoping for a similar turn from the Fed next week. This brought a fresh weakness in the US dollar overnight, with G10 gains led by AUD after a firmer-than-expected Q4 CPI print yesterday which would likely drive the RBA to continue to hike for now. AUDUSD hold above 0.71 with AUDNZD marching above 1.0950. GBPUSD returned back above 1.2400 as well while EURUSD is hovering near the YTD high of 1.0927 with a strong German Ifo report (read below) and hawkish rhetoric from the ECB continuing. USDJPY also back below 129.50 in the Asian morning.

Crude oil (CLG3 & LCOH3) prices range-bound

Crude oil prices remained firm on Wednesday after the EIA data showed an unexpected rise in US crude inventories. EIA reported a 0.5mln bbl build for US crude stocks in the latest week, marking the fifth straight build, albeit considerably less after the 8.4mln bbl build for the prior week, and on the lighter side of analyst expectations for a 1mln bbl build. Meanwhile, a weaker dollar and sustained positive signals from China reopening underpinned as well. WTI continued to find bids at $79.50 while Brent was supported around $85.50 with eyes on the December high of $89.40.

Gold (XAUUSD) pushes to fresh 9-month highs; eyes on 1950

The weakness in the dollar amid expectations of a Fed downshift to a smaller rate hike next week continues to push Gold prices higher. The yellow metal surged to 1949.20 overnight, the highest levels since April 2022. A dovish hike by the Bank of Canada last night has set up the markets for a similar shift from the Fed next week. The US GDP release today will be of key interest to gauge whether the market expectations shifting in favor of a soft landing rather than a recession can continue to hold. The focus will then turn to the PCE data on Friday before we head into the Fed meeting week. Support at $1900.


What to consider?

Bank of Canada’s dovish hike

The Bank of Canada raised interest rates by 25bps to 4.50%, the highest level in 15 years. It plans to hold going forward, but Governor Tiff Macklem said he's "prepared" to hike again if needed. The decision was slightly dovish with a clear pause being signalled, despite the caveat to hike again. The MPR saw the bank lower its 2022 and 2023 inflation forecast but sees 2024 inflation at 2.3% (prev. 2.2%), the same year it expects it to reach its target. Growth forecasts were raised in 2022 and 2023, but lowered in 2024. Markets are taking this as a positive signal in the hope that the Fed could take a similar turn next week.

Improving German business outlook further lowers recession risk

Germany business confidence survey signalled that the worst may be over for the economy and a slowdown may be ahead, but a deep recession appears to be unlikely at this point. The threat of an immediate energy crunch has receded due to the less harsh winter, and supply-chain constraints are also easing with China’s reopening. The expectation index of the Ifo survey rose for the fourth successive month to 86.4 in January from 83.2 previously, but remained historically subdued amid elevated inflation curbing purchasing power. The current assessment slightly deteriorated.

US GDP on the radar today, along with jobless claims

An advance print of the Q4 GDP will be released in the US today, and some deceleration is expected from last quarter’s 3.2% YoY. But consensus still expects a strong growth of 2.7% YoY as spending on services sustained. The big concern will be if we see consumers pulling back, as was signalled by a slump in retail sales this month. That could raise concerns on whether a soft landing is really possible. However, judging from the recent labor market strength, it may be too soon to count the consumer out. Initial jobless claims for last week will also be on watch after the previous figure dipped to sub-200k levels signalling a still-tight labor market.

Tesla earnings beat

Tesla reported Q4 revenue of USD24.32 billion, 1% above the consensus estimate of USD24.07 billion as per Bloomberg’s survey, and a growth of 13% Q/Q and 37% Y/Y. Adjusted net income grew nearly 60% to USD 3.69 billion from a year ago. Adjusted earnings per share came in at USD1.19, beating the consensus estimate of USD1.12 by 6%. The gross margin of 25.1% was below the 26.6% expected by the street and the EBITDA margin of 22.2% was lower than the 22.6% forecasted by analysts. The EV giant said it is accelerating cost-cutting actions. Tesla commented that its factory in China has been running near full capacity and it is not expecting meaningful volume increases in the near term.

Chevron boosts buyback on record profits

Chevron (CVX) announced $75 billion buyback (22% of marketcap and tripling the current program) that will start in Apr 1 and raised dividend by 6.3% to $1.51/share a quarter implying yield of 3.4%. 4Q earnings are due tomorrow. Other companies like Blackrock and Netflix have also announced buybacks for 2023, sending some optimism on a soft landing scenario as companies are not hoarding cash with fears of an incoming recession.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992